Weekend Profit Navigator July 5

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Tickers discussed: SPY QQQ IWM GLD GDX SMH Strategy update

The Weekend Profit Navigator provides a big picture stock market analysis for the week just past with a look ahead. Key levels and trading locations for the indexes are provided, along with trading plans and timely commentary to keep you on the right side of the trade.

Trader’s Couch – On News Flow 

Here’s what Market Wizard of the 1950’s and ’60’s, Darvas had to say on news flow, Wall Street opinions, and tipsters

Here’s what Wycoff had to say about it in 1933.

Nothing has changed traders. It is all there for us to see and learn from.  The only thing left is for us to decide if we will act.

Quotes are courtesy of John Boik on Twitter

Earnings

Wrestling for Control 

Bulls and Bears continue to wrestle for control of the SPY and IWM with both trapped in 3 week long trading ranges. All this despite the Q’s being oblivious to everything as it powers to new highs. Cautiously bullish here. Despite bearish divergences all over the place, price has failed to generate any sell signals of merit. No sense shooting against a rising tide unless sell signals fire. Otherwise it’s throwing money away. If you’ve been long, continue to ratchet up stops / strikes to protect those wins in a choppy environment. Respect any sell signals when / if they appear.  SPY / IWM are in pretty big trading ranges, either a break out or a break down promises a good sized, tradable move. Be ready for it.

Bullish Catalysts

  • Seasonality favors bulls in early July.
  • The period leading into earnings is usually bullish
  • Sequential Improvement:   As the economy continues to re-open and come off of 1932 depression levels, its hard not to see sequential improvement in numbers. While from an absolute level the economic numbers remain horrible, the market has reacted positively to the forward improving path.
  • Does Covid matter anymore?  3 weeks ago we were running 20K cases a day; 2 weeks ago we were at 40K a day; last week we were at 57K new cases a day. But thus far the market does not seem to be worried about the parabolic expansion of cases. Some say the market is only looking at death rate.  Hard to tell.
  • Unlimited FED Support.   Expect the Fed to step in with bazookas blazing if the market begins to tank.   Massive downside scenarios will likely be mitigated.
  • Fiscal Round 4:  If Congress can muster an infrastructure program, extend covid benefits or other wise pass added stimulus, it will be well received.

Bearish Catalysts

  • Covid Resurgence.   Although also cited as a bull catalyst, covid fears could return from nowhere as case counts explode. At this pace of expansion we’ll be at 100K cases a DAY by the end of July. I think the market will react if re-openings are scaled back further or halted all together.
  • Financials remain punky:   Banks and other financials remain in a funk. If loan loss provisions balloon, watch out below.
  • Politics:  The election is 4 months out.  There is historical precedent for a market sell off leading into the election if the incumbent is expected to lose. The factoid holds irrespective of which party is the incumbent.
  • Liquidation Sales:  Retailers are facing an onslaught of “going out of business” sales and other liquidations
  • Fed Balance Sheet rate of change:   After the initial surge, the rate of Fed balance sheet growth is slowing.  It’s like when your allowance is dialed back week after week. A slowing rate of change can’t be a positive
  • Island reversals holding and still in effect:  Lg cap, mid cap, and small cap indexes all have island top sell signals still in effect.  The NAZ has powered to new highs but with negative divergence in place. Not a sell signal but a warning flag.

Charts in Focus

$SMH- Semi ETF

The bullish ascending triangle implies a 9% upside move on a breakout.  Alarm $155 for the breakout.

 

$FDX – FedEx

Remains a compelling bracket trade to my eye with a big gap to fill below and room to run above. Aggressive traders can be long against $155 and look for a move to the top of the range. Otherwise wait for a break either above or below the range and follow price.

$GLD – Gold

I am still bullish gold, but would not want to see price lose it’s 60 minute rising trend line. Could trigger a pull back to the $165 range.  Time frame is everything on gold. Very bullish longer term but subject to pullbacks like anything else.

$GDX – Gold Miners

Price did not like touching $37. If price can power through $37 and hold it, that level would be a great place to establish new longs or roll strikes and stops up from lower levels. Room to run above.

I am in GDX JUL 34 Calls.   Ready for this to go.

Index Charts

$SPX Broadening Top

$SPY Weekly

SPY Daily

$QQQ Weekly

QQQ Daily

$IWM Weekly

$IWM Daily

 

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